The proposal drew opposition from the Ohio Municipal League, Ohio Mayors Alliance and city officials, who saw the proposal as unfair and yet another state-induced financial hit to their budgets.

“There is no fairness when you’re going to exempt only the highly compensated people,” said Faye Gibson, tax director for the city of Dublin. “That money has to come from somewhere. If you’re going to exempt this highly compensated group, then it puts a heavier burden on those who have to pay.”

The proposal would have cost her city at least $1.5 million to $2 million per year, Gibson said, and would have required refunds back to January 2016.

In written remarks, Grandview Heights Councilwoman Emily Keeler said the proposal would encourage more tax sheltering, costing the city future revenue. She added that the money already collected has been "invested in our community to the benefit of all of our citizens.”

Republicans had considered adding the municipal tax exemption into House Bill 69, a non-controversial bill dealing with local emergency levies and Tax Increment Financing districts. But after a rush of behind-the-scenes lobbying, the amendment was not included on Wednesday.

An amendment that did make it into the bill would finalize an agreement reached in September between lawmakers, Gov. John Kasich and county officials over cushioning the loss of $207 million in annual local sales tax revenue.

The proposal gives up to $80 million to counties and transit authorities to help with tax losses resulting resulting from the federal government no longer allowing the sales tax to be applied to Medicaid managed care organizations.

Lawmakers had approved a longer-term arrangement as part of the two-year budget, but Kasich vetoed it, citing concerns that federal government would not approve the plan to increase fees on Medicaid managed care.

It provides $50 million in state unclaimed funds now, and up to $30 million more in July 2018, assuming tax revenues remain on target. The money is distributed to counties based on size and reliance on the Medicaid sales tax. Franklin County gets $14.1 million, while COTA gets $5.3 million.

County officials were not happy with the deal, but they went along with it when it became clear Kasich and lawmakers were not willing to go higher. The money helps in the short term, said Cheryl Subler, managing director of policy for the County Commissioners Association of Ohio.

The bill got final legislative approval Wednesday and is headed to Kasich for his signature.

City officials are likely to see the tax issue again.

Sen. John Eklund, R-Chardon, chairman of the Senate Ways and Means Committee, said he will continue to pursue it.

“It’s not so much of a change as a matter of conforming the Revised Code to the pronouncements of the Ohio Supreme Court,” he said. “While that’s always a favorable thing to do, it’s important that we understand the full implications of doing so before we go ahead blindly.”

The Ohio Supreme Court in September ruled that a taxpayer’s SERP income fell under the pension exemption in Cleveland. An earlier court ruling found a similar exemption in Shaker Heights.

Ted Bernert, an attorney with BakerHostetler who litigated the Cleveland case, told lawmakers in written remarks that the proposal would simply codify the decision. “The amendment will not expand the scope of the pension exemption.”